Should I make a pre-auction offer on a property?

We examine how and when jumping the auction queue can work in your favour.

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icon of a hammer When you’ve found the perfect property, the prospect of competing against other buyers at auction can be pretty intimidating. It can be tempting to try to avoid auction altogether with a pre-auction offer. This isn’t always a bad idea, but it’s imperative to first learn when, why and how you should make an offer prior to auction.

Know why they might say yes

Auctions are an incredibly popular way to sell homes in Australia. According to realestate.com.au, 20% of homes from September 2014 to September 2015 sold via auction. In capital cities this number was even higher, with around 30% of Sydney and Melbourne homes selling at auction.

It’s easy to see why vendors might want to take their chances at auction. After all, there’s no upper limit to what one could receive at auction, and the competitive bidding environment can serve to push prices skyward.

Likewise, there are plenty of reasons why a vendor might want to avoid auction. Recent auction results could make vendors a bit more wary about trying their chances. Auction clearance rates have been trending lower over recent weeks. According to CoreLogic, the combined capital city auction clearance rate for the week ending 24 September 2017 was 70.7%, down from 75.4% for the same week in 2016.

Auctions can be expensive endeavours. When taking into account marketing and the services of an auctioneer, Openagent.com.au estimates the expense of auctioning a $700,000 home could be up to $7,000. That’s a big gamble in a market where clearance rates are falling.

Time can be another factor that makes vendors rethink going to auction. Some vendors may have already found another property, and may be keen to sell their old property as quickly as possible. In a situation like this, a four-week marketing campaign for an auction can seem like an eternity.

If you understand some of the factors that could motivate vendors to sell prior to auction, you can make an informed assessment of the market and determine whether it’s likely vendors are looking to avoid auction.

Do the research

Before you make an offer on a property, make sure you know enough about its value to put yourself in serious contention.

Any property going to auction will have a rough idea, even before the campaign begins, of a price guide. While some vendors and agents can be a bit cagey on the question, you can usually get an idea of the suggested price if you ask directly.

But this is far from the only factor determining the price a property is likely to attract. Put in the time to research what price the property is likely to fetch at auction.

Where (and how) to find accurate property prices)

You can usually get a rough idea of the median price for similar properties by searching the property’s address on Domain or realestate.com.au. To get an even better idea, look at recent sales of similar properties. You’ll need to put some time in doing research to find truly comparable properties. Remember, not all two-bedroom houses are created equal, so pay attention to the condition, floor space, land space and amenities of the other sales in the area.

Show genuine interest

Demonstrate to the vendor and their agent that you’re interested in the property. You might want to attend several of the open inspections to begin to build a rapport with the agent and show you’re serious about the property.

When you do attend inspections, ask questions. Get as many specifics as you can about the house itself, and about the vendor, their goals and their expectations. Remember, the agent works for the vendor so they’re not likely to give away any sensitive information. However, you do want to demonstrate a genuine interest in understanding what the vendor is looking for and what offers they might be likely to consider.

You can also show you’re serious by taking some additional steps to research the property. Ask the agent for the contract of sale, and ask if there’s a building and pest inspection report you can purchase. Taking steps like this can set you apart from the rest of the crowd.

Make an offer they can’t refuse

It may seem counterintuitive, but when you make a pre-auction offer you need to go in bold and aggressive. In most business negotiations, you might want to hold your cards close and hesitate to give too much away. This strategy is unlikely to work when you’re trying to convince a vendor to sell before auction.

Make the vendor an offer near the upper limit of what you’re willing to pay. Remember, you’re trying to convince them that it’s worth avoiding auction to take your offer. You’re not going to accomplish that with a lowball price.

In addition to offering an enticing price, try to offer enticing terms as well. You can offer a short settlement time, a bigger deposit or even waive the cooling-off period. You want to offer the vendor better terms than they can expect at auction.

Be prepared

If your offer is accepted, you need to be organised and ready to make good on it.

This means you’ll need to have your deposit cheque ready to deliver to the vendor as soon as your offer is accepted. It also means you’ll want to have finance in order for you to move to settlement in a reasonable timeframe. It’s worth getting home loan pre-approval before you make an offer. This means you'll need to compare your options to find the right home loan for your situation.

You also need to be ready to exchange contracts quickly. It could be worth having a solicitor look over the contract of sale before you put in your offer. Remember that until contracts are exchanged, there’s nothing stopping the vendor from entertaining other offers.

Be sure it’s the best strategy

The major caveat to all of the above is to be certain that making an offer prior to auction is a strategy you’re comfortable with. There’s every possibility that a pre-auction offer will see you paying more for a property than if you had gone to auction.

If your offer is rejected, you run the risk of merely adjusting the vendor’s price expectations upwards. This means the vendor and their agent can now tell any other potential buyers that they’ve had interest above the original price guide. Your offer now becomes the floor for everyone else.

If you do choose to make an offer prior to auction, you should do so because market conditions seem to favour buyers, and you think you can secure the property at a reasonable price without competing with others at auction. A pre-auction offer might not always be the right strategy, but if you know what you’re willing to pay and you want to take other buyers out of the running, it could be worth the risk.

If you a pre-auction offer doesn't work, here are some expert tips to give you the upper hand in the auction.

Compare some of the market's best home loans below

Data indicated here is updated regularly
$
years
Name Product Interest Rate (p.a.) Comp. Rate^ Application Fee Ongoing Fees Max LVR Monthly Payment
St.George Basic Home Loan
2.54%
2.56%
$0
$0 p.a.
80%
$596.91
Up to $4,000 refinance cashback. With this competitive variable rate loan from St.George, refinancers borrowing $250,000+ can get up $4,000 cashback and borrow up to 80% of the property's value. (Terms, conditions & exclusions apply).
Westpac Flexi First Option Home Loan
2.29%
2.72%
$0
$8 monthly ($96 p.a.)
95%
$577.55
Up to $3,000 refinance cashback.
A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.
HSBC Fixed Rate Home Loan
1.88%
2.98%
$0
$0 p.a.
80%
$546.6
Lock in a competitive fixed rate for 2 years and buy your home with a 20% deposit.
Athena Variable Home  Loan
2.19%
2.19%
$0
$0 p.a.
60%
$569.91
Owner occupiers with 40% deposits or equity can get this competitive variable rate loan. No upfront or ongoing fees.
Suncorp Back to Basics Home Loan
2.54%
2.55%
$0
$0 p.a.
80%
$596.91
A competitive variable interest rate loan with low fees. The establishment fee is waived if you borrow $150,000 or more.
UBank UHomeLoan Variable Rate
2.34%
2.34%
$0
$0 p.a.
80%
$581.39
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
Macquarie Bank Basic Home Loan
2.49%
2.49%
$0
$0 p.a.
60%
$593.01
A competitive variable rate home loan for owner-occupiers. Requires a 40% deposit.
St.George Fixed Rate Advantage Package
2.09%
3.46%
$0
$395 p.a.
95%
$562.33
Lock in a low fixed rate for the first two years. Refinancers borrowing $250,000 or more can get cashbacks between $2,000 and $4,000 depending on their loan to value ratio (Other terms, conditions and exclusions apply
UBank UHomeLoan Fixed
1.95%
2.27%
$0
$0 p.a.
80%
$551.82
A competitive fixed interest rate loan with no ongoing fees. Requires a 20% deposit.
Suncorp Home Package Plus Fixed
1.89%
2.94%
$0
$0 p.a.
80%
$547.35
Lock in a low fixed rate loan for two years and get the annual package fee waived in the first year. Available for borrowers with 20% deposits.
Westpac Fixed Option Home Loan Premier Advantage Package
2.09%
3.5%
$0
$395 p.a.
95%
$562.33
Up to $3,000 refinance cashback.
Competitive fixed rate home loan. Eligible borrowers refinancing $250,000 or more can get up to $3,000 cashback. Other conditions apply.
HSBC Home Value Loan
2.59%
2.6%
$0
$0 p.a.
80%
$600.83
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online.
homeloans.com.au Low Rate Home Loan with Offset
2.14%
2.16%
$0
$0 p.a.
60%
$566.11
A competitive rate with no application or ongoing fee. This loan is not available for construction.
Virgin Money Reward Me Fixed Rate Home Loan
2.04%
2.79%
$300
$10 monthly ($120 p.a.)
80%
$558.56
$3,000 refinance cashback.
Buy your home and lock in a low rate for the first two years. Get a $3,000 cashback when you switch to Virgin Money with a loan amount of $300,000 or more with an LVR up to 80%. You must apply by 30 November 2020 and settle by 23 April 2021.
Macquarie Bank Offset Home Loan Package
2.49%
2.76%
$0
$0 p.a.
60%
$593.01
A sharp variable rate with low fees for borrowers with 40% deposits or refinancers with equity in their properties.
homeloans.com.au Low Rate Home Loan with Offset
2.24%
2.26%
$0
$0 p.a.
90%
$573.72
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments. This loan is not available for construction.
St.George Basic Home Loan
2.59%
2.61%
$0
$0 p.a.
90%
$600.83
Up to $4,000 refinance cashback.
With this competitive variable rate loan from St.George, refinancers borrowing $250,000+ can get up $4,000 cashback and borrow up to 90% of the property's value. (Terms, conditions & exclusions apply).
Macquarie Bank Basic Fixed Home Loan
2.19%
2.53%
$0
$0 p.a.
80%
$569.91
Borrow up to $750,000 with this basic 3 years fixed rate home loan.
Bank of Melbourne Basic Home Loan
2.54%
2.56%
$0
$0 p.a.
80%
$596.91
Up to $4,000 refinance cashback
A competitive variable rate loan from Bank of Melbourne. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).
UBank UHomeLoan Fixed
2.14%
2.35%
$0
$0 p.a.
80%
$566.11
Fix your mortgage for 1 year with a very competitive rate and no ongoing fees.
Bank of Melbourne Advantage Package Fixed Home Loan
2.09%
3.46%
$0
$395 p.a.
95%
$562.33
Competitive fixed rate loan. Refinancers borrowing $250,000 or more can get cashbacks between $2,000 and $4,000 depending on their loan to value ratio (Other terms, conditions and exclusions apply
BankSA Basic Home Loan
2.54%
2.56%
$0
$0 p.a.
80%
$596.91
Up to $4,000 refinance cashback
A competitive variable rate loan from BankSA. Refinancers borrowing $200,000 or more can get a $4,000 cashback (Other terms, conditions and exclusions apply).
homeloans.com.au Low Rate Home Loan with Offset
2.59%
2.61%
$0
$0 p.a.
90%
$600.83
Save on interest with a free 100% offset account and buy your property with just a 10% deposit. This loan is not available for construction.
Bank of Melbourne Basic Home Loan
2.59%
2.61%
$0
$0 p.a.
80%
$600.83
Competitive variable rate home loan. Refinancers borrowing $250,000 or more can get cashbacks between $2,000 and $4,000 depending on their loan to value ratio (Other terms, conditions and exclusions apply
BankSA Advantage Package Fixed Home Loan
2.09%
3.46%
$0
$395 p.a.
80%
$562.33
Competitive fixed rate loan. Refinancers borrowing $200,000 or more can get cashbacks between $2,000 and $4,000 depending on their loan to value ratio (Other terms, conditions and exclusions apply
CUA Achieve Variable Home Loan
2.55%
2.6%
$600
$0 p.a.
95%
$597.7
Home buyers can get a competitive, low-fee variable rate plus a 100% offset account. Low deposit option available. Eligible new home buyers with low deposits can apply for the First Home Loan Deposit Scheme with this lender and avoid LMI costs.Eligible refinancers can get a $2,000 pre-paid credit card when they switch to CUA.
Greater Bank Great Rate Discount Variable with Family Pledge Home Loan
2.59%
2.6%
$0
$0 p.a.
110%
$600.83
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, QLD and ACT only.
Athena Variable Home  Loan
2.29%
2.23%
$0
$0 p.a.
80%
$577.55
A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan.
UBank UHomeLoan Variable Rate
2.74%
2.74%
$0
$0 p.a.
80%
$612.67
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
Virgin Money Reward Me Variable Home Loan
2.59%
2.76%
$300
$10 monthly ($120 p.a.)
60%
$600.83
$3,000 refinance cashback.
A variable rate loan for owner occupiers with a 40% deposit (or equity) borrowing under $500,000. Get a $3,000 cashback when you switch to Virgin Money with a loan amount of $300,000 or more with an LVR up to 80%. You must apply by 30 November 2020 and settle by 23 April 2021.
Athena Variable Home  Loan
2.24%
2.21%
$0
$0 p.a.
70%
$573.72
A low variable rate for owner occupiers with 30% deposits. No upfront or ongoing fees.
UBank UHomeLoan Fixed
2.29%
2.35%
$0
$0 p.a.
80%
$577.55
A competitive 3 year fixed rate with no ongoing bank fees.
Macquarie Bank Basic Fixed Home Loan
2.09%
2.43%
$0
$0 p.a.
70%
$562.33
Get a low interest rate and a mortgage with flexible, basic features. No application or ongoing fees. Requires a 30% deposit.
UBank UHomeLoan Fixed
2.29%
2.36%
$0
$0 p.a.
80%
$577.55
A one year fixed rate offer with no ongoing bank fees.
Athena Variable Home  Loan
2.84%
2.46%
$0
$0 p.a.
80%
$620.63
Owner occupiers can refinance to one of the most competitive interest-only rates in the market. No application fee and no ongoing fees.
UBank UHomeLoan Fixed
2.44%
2.74%
$0
$0 p.a.
80%
$589.12
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
Heritage Bank Fixed Rate Home Loan
2.19%
4.23%
$600
$8 monthly ($96 p.a.)
95%
$569.91
Get a partial offset account and the option to make interest-only repayments.
UBank UHomeLoan Fixed
2.29%
2.72%
$0
$0 p.a.
80%
$577.55
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
Heritage Bank Discount Variable Home Loan
2.68%
2.73%
$600
$0 p.a.
80%
$607.92
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
HSBC Home Value Loan
2.64%
2.65%
$0
$0 p.a.
90%
$604.76
A competitive value home loan with no ongoing fee.
Macquarie Bank Basic Home Loan
2.64%
2.64%
$0
$0 p.a.
80%
$604.76
Pay no application and ongoing fees and take advantage of split and redraw options.
Heritage Bank Advantage Package Fixed
2.39%
3.23%
$0
$350 p.a.
95%
$585.25
Get a partial offset account and flexible repayments with this package loan.
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